Japan is in no rush to digitize the yen but there are reasons the country should think seriously about a central bank digital currency (CBDC), said Tetsuya Inoue, formerly of the Bank of Japan (BoJ) and now a chief researcher at the Nomura Research Institute. Inoue is the author of a book on a digital yen.
Inoue told CoinDesk Japan in a recent interview that as Japanese banknotes are highly trusted, and there isn’t a considerable unbanked population, there is no rush to issue a digital currency.
In March 2020, BoJ Deputy Governor Masayoshi Amamiya asserted that advanced economies like Japan have no need for a digital currency, and a CBDC will have little merit.
But in 2019, the government took initiatives to promote cashless payments across the country by offering rewards as incentives, and earlier this year, Japan set up a digital currency group to research a possible CBDC.
Japan should not ignore the growing global interest in digital currencies, Inoue said, because the technology that would support such a currency would also support financial services that use the digital currency as infrastructure, creating network externalities (the increase in demand for a product or service as more people begin to use it).
Once the entire system originating from another country has a monopoly status, it is difficult to replace it, Inoue said. This plays a role in the battle for hegemony by major countries.
Even though Japan could still maintain its yen, if another country establishes a strong digital financial ecosystem, Japan will have to rely on it to process domestic payments securely and efficiently, undermining the competitiveness of its own financial services, he added.
When asked about concerns around personal data usage, Inoue said there would have to be a tradeoff: If people are providing their information in exchange for improved convenience and service, then the gain has to be calculated accordingly.
Going forward, governments should further promote digitalization not only for the short-term purpose of recovering economic activity, but also for the long-term stability of economic society, Inoue said.
By July 2020, BoJ had changed its tune with an official saying research into a potential CBDC is now a “top priority.”
– Coindesk